* Parliament to discuss tougher "Swiss made" rules next month
* Watch federation rejects compromise advocated by lobby
* Watch industry set to benefit most from stricter rules
ZURICH, Feb 28 The Swiss watch federation said it would leave business lobby economiesuisse for not backing stricter rules regarding products bearing the "Swiss made" label, stepping up pressure ahead of a parliamentary debate next month.
The move is likely to heat up the discussion about a controversial draft law proposing that at least 60 percent of the manufacturing costs of an industrial product stamped "Swiss made" have to occur in Switzerland.
"Economiesuisse is blocking tighter rules for the 'Swiss made' label," the watch federation said in a statement on Thursday.
Current legislation says that only 50 percent of the value of the precision-tooled inner workings of a watch, known as the watch movement, has to be manufactured in Switzerland. There is no law for other industrial products, but businesses use as a reference a court ruling from 1968 saying that at least 50 percent of manufacturing costs have to occur in Switzerland.
The watch federation has criticised the existing rule as too weak, saying it allowed for mainly foreign-made watches to be sold as "Swiss made".
Economiesuisse, which says it represents 2 million employees, said up until last year that it believed the 50 percent standard was enough for all goods. Recently it has said it backs the 60 percent threshold for the watch industry but does not want this rule to be imposed on other sectors.
Other Swiss business sectors - those less profitable than the watch industry - are worried they will lose their "Swiss made" tag if the rules get too tight because they will be unable to afford to bring production back to Switzerland and pay higher costs there.
"Economiesuisse only started backing the 60 percent rule for the watch industry in 2012 when discussions were already well under way. That was too late, it has not really helped us," said Jean-Daniel Pasche, chairman of the watch federation which has spearheaded the move to tighten rules.
The draft law will be discussed again by Switzerland's lower house on March 11 after a first round of debates in both houses last year ended with a disagreement over how much Swiss value is needed in a Swiss-tagged industrial product.
The lower house has so far backed the 60 percent rule, but the upper house said 50 percent of Swiss-made ingredients were enough.
Almost all Swiss watches bear the "Swiss made" label and benefit from the considerable sales premium customers are willing to pay for that label - up to 50 percent of the purchase price for luxury items according to recent studies. (Reporting by Silke Koltrowitz; Editing by Sophie Walker)